The contemporary Liberal Party generally advocates economic liberalism (see New Right). Historically, the party has supported a higher degree of economic protectionism and interventionism than it has in recent decades. However, from its foundation the party has identified itself as anti-socialist. Strong opposition to socialism and communism in Australia and abroad was one of its founding principles. The party's founder and longest-serving leader Robert Menzies envisaged that Australia's middle class would form its main constituency.[8]

Towards the end of his term as Prime Minister of Australia, in a final address to the Liberal Party Federal Council in 1964, Menzies spoke of the "Liberal Creed" as follows:

As the etymology of our name 'Liberal' indicates, we have stood for freedom. We have realised that men and women are not just ciphers in a calculation, but are individual human beings whose individual welfare and development must be the main concern of government ... We have learned that the right answer is to set the individual free, to aim at equality of opportunity, to protect the individual against oppression, to create a society in which rights and duties are recognised and made effective.

Soon after the election of the Howard Government the new Prime Minister John Howard, who was to become the second-longest serving Liberal Prime Minister, spoke of his interpretation of the "Liberal Tradition" in a Robert Menzies Lecture in 1996:

Menzies knew the importance for Australian Liberalism to draw upon both the classical liberal as well as the conservative political traditions. ... He believed in a liberal political tradition that encompassed both Edmund Burke and John Stuart Mill – a tradition which I have described in contemporary terms as the broad church of Australian Liberalism.

Throughout their history, the Liberals have been in electoral terms largely the party of the middle class (whom Menzies, in the era of the party's formation called "The forgotten people"), though such class-based voting patterns are no longer as clear as they once were. In the 1970s a left-wing middle class emerged that no longer voted Liberal.[citation needed] One effect of this was the success of a breakaway party, the Australian Democrats, founded in 1977 by former Liberal minister Don Chipp and members of minor liberal parties; other members of the left-leaning section of the middle-class became Labor supporters.[citation needed] On the other hand, the Liberals have done increasingly well in recent years among socially conservative working-class voters.[citation needed]However the Liberal Party's key support base remains the upper-middle classes; 16 of the 20 richest federal electorates are held by the Liberals, most of which are safe seats.[10] In country areas they either compete with or have a truce with the Nationals, depending on various factors.

Domestically, Menzies presided over a fairly regulated economy in which utilities were publicly owned, and commercial activity was highly regulated through centralised wage-fixing and high tariff protection. Liberal leaders from Menzies to Malcolm Fraser generally maintained Australia's high tariff levels. At that time the Liberals' coalition partner, the Country Party, the older of the two in the coalition (now known as the "National Party"), had considerable influence over the government's economic policies. It was not until the late 1970s and through their period out of power federally in the 1980s that the party came to be influenced by what was known as the "New Right" – a conservative liberal group who advocated market deregulation, privatisation of public utilities, reductions in the size of government programs and tax cuts.

The party has mainly two unorganised factions, the conservative right and the moderate left. Historically, moderates have at times formed their own parties, most notably the Australian Democrats who gave voice to what is termed small-l liberalism in Australia.

The Liberal Party's organisation is dominated by the six state divisions, reflecting the party's original commitment to a federalised system of government (a commitment which was strongly maintained by all Liberal governments until 1983, but was to a large extent abandoned by the Howard Government, which showed strong centralising tendencies). Menzies deliberately created a weak national party machine and strong state divisions. Party policy is made almost entirely by the parliamentary parties, not by the party's rank-and-file members, although Liberal party members do have a degree of influence over party policy.[15]

The Liberal Party's basic organisational unit is the branch, which consists of party members in a particular locality. For each electorate there is a conference–notionally above the branches–which coordinates campaigning in the electorate and regularly communicates with the member (or candidate) for the electorate. As there are three levels of government in Australia, each branch elects delegates to a local, state, and federal conference.[15]

All the branches in an Australian state are grouped into a Division. The ruling body for the Division is a State Council. There is also one Federal Council which represents the entire organisational Liberal Party in Australia. Branch executives are delegates to the Councils ex-officio and additional delegates are elected by branches, depending on their size.[15]

Preselection of electoral candidates is performed by a special electoral college convened for the purpose. Membership of the electoral college consists of head office delegates, branch officers, and elected delegates from branches.[15]

The UAP had been formed as a new conservative alliance in 1931, with Labor defector Joseph Lyons as its leader. The stance of Lyons and other Labor rebels against the more radical proposals of the Labor movement to deal the Great Depression had attracted the support of prominent Australian conservatives.[16] With Australia still suffering the effects of the Great Depression, the newly formed party won a landslide victory at the 1931 Election, and the Lyons Government went on to win three consecutive elections. It largely avoided Keynesian pump-priming and pursued a more conservative fiscal policy of debt reduction and balanced budgets as a means of stewarding Australia out of the Depression. Lyons' death in 1939 saw Robert Menzies assume the Prime Ministership on the eve of war. Menzies served as Prime Minister from 1939 to 1941 but resigned as leader of the minority World War II government amidst an unworkable parliamentary majority. The UAP, led by Billy Hughes, disintegrated after suffering a heavy defeat in the 1943 election.

Menzies called a conference of conservative parties and other groups opposed to the ruling Australian Labor Party, which met in Canberra on 13 October 1944 and again in Albury, New South Wales in December 1944.[17][18] From 1942 onward Menzies had maintained his public profile with his series of "The Forgotten People" radio talks–similar to Franklin D. Roosevelt's "fireside chats" of the 1930s–in which he spoke of the middle class as the "backbone of Australia" but as nevertheless having been "taken for granted" by political parties.[19][20]

Outlining his vision for a new political movement in 1944, Menzies said:

...[W]hat we must look for, and it is a matter of desperate importance to our society, is a true revival of liberal thought which will work for social justice and security, for national power and national progress, and for the full development of the individual citizen, though not through the dull and deadening process of socialism.

The formation of the party was formally announced at Sydney Town Hall on 31 August 1945.[18] It took the name "Liberal" in honour of the old Commonwealth Liberal Party. The new party was dominated by the remains of the old UAP; with few exceptions, the UAP party room became the Liberal party room. The Australian Women's National League, a powerful conservative women's organisation, also merged with the new party. A conservative youth group Menzies had set up, the Young Nationalists, was also merged into the new party. It became the nucleus of the Liberal Party's youth division, the Young Liberals. By September 1945 there were more than 90,000 members, many of whom had not previously been members of any political party.[18]

After an initial loss to Labor at the 1946 election, Menzies led the Liberals to victory at the 1949 election, and the party stayed in office for a record 23 years—still the longest unbroken run in government at the federal level. Australia experienced prolonged economic growth during the post-war boom period of the Menzies Government (1949–1966) and Menzies fulfilled his promises at the 1949 election to end rationing of butter, tea and petrol and provided a five-shilling endowment for first-born children, as well as for others.[22] While himself an unashamed anglophile, Menzies' government concluded a number of major defence and trade treaties that set Australia on its post-war trajectory out of Britain's orbit; opened Australia to multi-ethnic immigration; and instigated important legal reforms regarding Aboriginal Australians.

Menzies came to power the year the Communist Party of Australia had led a coal strike to improve pit miners' working conditions. That same year Joseph Stalin's Soviet Union exploded its first atomic bomb, and Mao Zedong led the Communist Party of China to power in China; a year later came the invasion of South Korea by Communist North Korea. Anti-communism was a key political issue of the 1950s and 1960s.[24] Menzies was firmly anti-Communist; he committed troops to the Korean War and attempted to ban the Communist Party of Australia in an unsuccessful referendum during the course of that war. The Labor Party split over concerns about the influence of the Communist Party over the Trade Union movement, leading to the foundation of the breakaway Democratic Labor Party whose preferences supported the Liberal and Country parties.[25]

In 1951, during the early stages of the Cold War, Menzies spoke of the possibility of a looming third world war. The Menzies Government entered Australia's first formal military alliance outside of the British Commonwealth with the signing of the ANZUS Treaty between Australia, New Zealand and the United States in San Francisco in 1951. External Affairs Minister Percy Spender had put forward the proposal to work along similar lines to the NATO Alliance. The Treaty declared that any attack on one of the three parties in the Pacific area would be viewed as a threat to each, and that the common danger would be met in accordance with each nation's constitutional processes. In 1954 the Menzies Government signed the South East Asia Collective Defence Treaty (SEATO) as a South East Asian counterpart to NATO. That same year, Soviet diplomat Vladimir Petrov and his wife defected from the Soviet embassy in Canberra, revealing evidence of Russian spying activities; Menzies called a Royal Commission to investigate.[26]

In 1956 a committee headed by Sir Keith Murray was established to inquire into the financial plight of Australia's universities, and Menzies pumped funds into the sector under conditions which preserved the autonomy of universities.

Menzies continued the expanded immigration program established under Chifley, and took important steps towards dismantling the White Australia Policy. In the early 1950s, external affairs minister Percy Spender helped to establish the Colombo Plan for providing economic aid to underdeveloped nations in Australia's region. Under that scheme many future Asian leaders studied in Australia.[27] In 1958 the government replaced the Immigration Act's arbitrarily applied European language dictation test with an entry permit system, that reflected economic and skills criteria.[28][29] In 1962, Menzies' Commonwealth Electoral Act provided that all Indigenous Australians should have the right to enrol and vote at federal elections (prior to this, indigenous people in Queensland, Western Australia and some in the Northern Territory had been excluded from voting unless they were ex-servicemen).[30] In 1949 the Liberals appointed Dame Enid Lyons as the first woman to serve in an Australian Cabinet. Menzies remained a staunch supporter of links to the monarchy and British Commonwealth but formalised an alliance with the United States and concluded the Agreement on Commerce between Australia and Japan which was signed in July 1957 and launched post-war trade with Japan, beginning a growth of Australian exports of coal, iron ore and mineral resources that would steadily climb until Japan became Australia's largest trading partner.

Prime Minister Harold Holt (second from left), with SEATO leaders in Manila, in 1966. The Liberal Party was in power through much of the early Post-War period in which Australia's allegiances, immigration and trade policies shifted away from reliance on Britain.

Harold Holt replaced the retiring Robert Menzies in 1966 and the Holt Government went on to win 82 seats to Labor's 41 in the 1966 election.[31] Holt remained Prime Minister until 19 December 1967, when he was declared presumed dead two days after disappearing in rough surf in which he had gone for a swim.

Holt increased Australian commitment to the growing War in Vietnam, which met with some public opposition. His government oversaw conversion to decimal currency. Holt faced Britain's withdrawal from Asia by visiting and hosting many Asian leaders and by expanding ties to the United States, hosting the first visit to Australia by an American president, his friend Lyndon B. Johnson. Holt's government introduced the Migration Act 1966, which effectively dismantled the White Australia Policy and increased access to non-European migrants, including refugees fleeing the Vietnam War. Holt also called the 1967 Referendum which removed the discriminatory clause in the Australian Constitution which excluded Aboriginal Australians from being counted in the census – the referendum was one of the few to be overwhelmingly endorsed by the Australian electorate (over 90% voted 'yes'). By the end of 1967, the Liberals' initially popular support for the war in Vietnam was causing increasing public protest.[32]

John and Bettina Gorton. Prime Minister John Gorton led Australia into the tumultuous decade of the 1970s. Gorton declared himself "Australian to the bootheels" and increased funding for Australian cinema and arts to project a newly assertive Australian nationalism.

The Liberals chose John Gorton to replace Holt. Gorton, a former World War IIRoyal Australian Air Force pilot, with a battle scarred face, said he was "Australian to the bootheels" and had a personal style which often affronted some conservatives.

The Gorton Government increased funding for the arts, setting up the Australian Council for the Arts, the Australian Film Development Corporation and the National Film and Television Training School. The Gorton Government passed legislation establishing equal pay for men and women and increased pensions, allowances and education scholarships, as well as providing free health care to 250,000 of the nation's poor (but not universal health care). Gorton's government kept Australia in the Vietnam War but stopped replacing troops at the end of 1970.[33]

Gorton maintained good relations with the United States and Britain, but pursued closer ties with Asia. The Gorton government experienced a decline in voter support at the 1969 election. State Liberal leaders saw his policies as too Centralist, while other Liberals didn't like his personal behaviour. In 1971, Defence Minister Malcolm Fraser, resigned and said Gorton was "not fit to hold the great office of Prime Minister". In a vote on the leadership the Liberal Party split 50/50, and although this was insufficient to remove him as the leader, Gorton decided this was also insufficient support for him, and he resigned.[33]

The economy was weakening. McMahon maintained Australia's diminishing commitment to Vietnam and criticised Opposition leader, Gough Whitlam, for visiting Communist China in 1972—only to have the US President Richard Nixon announce a planned visit soon after.[34]

During McMahon's period in office, Neville Bonner joined the Senate and became the first Indigenous Australian in the Australian Parliament.[35] Bonner was chosen by the Liberal Party to fill a Senate vacancy in 1971 and celebrated his maiden parliamentary speech with a boomerang throwing display on the lawns of Parliament. Bonner went on to win election at the 1972 election and served as a Liberal Senator for 12 years. He worked on Indigenous and social welfare issues and proved an independent minded Senator, often crossing the floor on Parliamentary votes.[36]

Following Whitlam's victory, John Gorton played a further role in reform by introducing a Parliamentary motion from Opposition supporting the legalisation of same-gender sexual relations. Billy Snedden led the party against Whitlam in the 1974 federal election, which saw a return of the Labor government. When Malcolm Fraser won the Liberal Party leadership from Snedden in 1975, Gorton walked out of the Party Room.[37]

A period of division for the Liberals followed, with former Treasurer John Howard competing with former Foreign Minister Andrew Peacock for supremacy. The Australian economy was facing the early 1990s recession. Unemployment reached 11.4% in 1992. Under Dr John Hewson, in November 1991, the opposition launched the 650-page Fightback! policy document − a radical collection of "dry", economic liberal measures including the introduction of a Goods and Services Tax (GST), various changes to Medicare including the abolition of bulk billing for non-concession holders, the introduction of a nine-month limit on unemployment benefits, various changes to industrial relations including the abolition of awards, a $13 billion personal income tax cut directed at middle and upper income earners, $10 billion in government spending cuts, the abolition of state payroll taxes and the privatisation of a large number of government owned enterprises − representing the start of a very different future direction to the keynesianeconomic conservatism practiced by previous Liberal/National Coalition governments. The 15 percent GST was the centerpiece of the policy document. Through 1992, LaborPrime MinisterPaul Keating mounted a campaign against the Fightback package, and particularly against the GST, which he described as an attack on the working class in that it shifted the tax burden from direct taxation of the wealthy to indirect taxation as a broad-based consumption tax. Pressure group activity and public opinion was relentless, which led Hewson to exempt food from the proposed GST − leading to questions surrounding the complexity of what food was and wasn't to be exempt from the GST. Hewson's difficulty in explaining this to the electorate was exemplified in the infamous birthday cake interview, considered by some as a turning point in the election campaign. Keating won a record fifth consecutive Labor term at the 1993 election. A number of the proposals were later adopted in to law in some form, to a small extent during the Keating Labor government, and to a larger extent during the Howard Liberal government (most famously the GST), while unemployment benefits and bulk billing were re-targeted for a time by the Abbott Liberal government.

At the state level, the Liberals have been dominant for long periods in all states except Queensland, where they have always held fewer seats than the National Party (not to be confused with the old Nationalist Party). The Liberals were in power in Victoria from 1955 to 1982. Jeff Kennett led the party back to office in that state in 1992, and remained Premier until 1999.

The party has held office in Western Australia intermittently since 1947. Liberal Richard Court was Premier of the state for most of the 1990s.

In New South Wales, the Liberal Party has not been in office as much as its Labor rival, and just three leaders have led the party from opposition to government in that state: Sir Robert Askin, who was premier from 1965 to 1975, Nick Greiner, who came to office in 1988 and resigned in 1992, and Barry O'Farrell who would lead the party out of 16 years in opposition in 2011.

Prime Minister John Howard with APEC leaders in Sydney in 2007. Howard supported the traditional icons of Australian identity and its international allegiances, but oversaw booming trade with Asia and increased multiethnic immigration.

Howard generally framed the Liberals as being conservative on social policy, debt reduction and matters like maintaining Commonwealth links and the American Alliance but his premiership saw booming trade with Asia and expanding multiethnic immigration. His government concluded the Australia-United States Free Trade Agreement with the Bush Administration in 2004.[35]

Howard differed from his Labor predecessor Paul Keating in that he supported traditional Australian institutions like the Monarchy in Australia, the commemoration of ANZAC Day and the design of the Australian flag, but like Keating he pursued privatisation of public utilities and the introduction of a broad based consumption tax (although Keating had dropped support for a GST by the time of his 1993 election victory). Howard's premiership coincided with Al Qaeda's 11 September attacks on the United States. The Howard Government invoked the ANZUS treaty in response to the attacks and supported America's campaigns in Afghanistan and Iraq.

In the 2004 Federal elections the party strengthened its majority in the Lower House and, with its coalition partners, became the first federal government in twenty years to gain an absolute majority in the Senate. This control of both houses permitted their passing of legislation without the need to negotiate with independents or minor parties, exemplified by industrial relations legislation known as WorkChoices, a wide ranging effort to increase deregulation of industrial laws in Australia.

In 2005, Howard reflected on his government's cultural and foreign policy outlook in oft repeated terms:[42]

When I became Prime Minister nine years ago, I believed that this nation was defining its place in the world too narrowly. My Government has rebalanced Australia's foreign policy to better reflect the unique intersection of history, geography, culture and economic opportunity that our country represents. Time has only strengthened my conviction that we do not face a choice between our history and our geography.